Data Shows Private Equity Taking Action with HR and Tech During Economic Storm, Per BluWave Activity Index

BluWave, the business builders’ network for private equity grade needs, released its Q1 BluWave PE Industry Insights Report. The report’s exclusive data provides a unique perspective into how the world’s top businesses are finding and acting on opportunities in this uncertain economy.

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“As our analysis shows, the PE industry has been leaping into action… finding diamonds in the rough, injecting capital to provide life rafts to companies in need and providing every resource their portcos require to not only survive but thrive.”

The analysis, first released in 2018, presents actionable data to help leaders navigate the new economic normal by analyzing the due diligence and value creation activity of more than 500 leading private equity firms and their portfolio companies.

As economic growth and deal flow remains slow, there have been fundamental changes in private equity activity:

• Value creation is at a record high: The overall private equity activity mix of value creation to due diligence is 78%/22%, tying the Q1 2022 all-time high. This indicates how private equity firms are partnering with their portfolio companies to strengthen foundations and take advantage of the opportunities presented during a transitionary economy.
• Human Capital continues to steal the spotlight: Talent continues to be the biggest PE trend, representing 45 percent of initiatives by functional area. Firms are getting involved in hiring more deeply into the mid-level of their organizations as part of a broader trend of strategic and operational improvement within portcos.
• PE has embraced transforming companies rather than simply optimizing them, requiring wholly new capabilities driven by high valuations and the need for longer-term, more comprehensive value creation plans.

“So far 2023 gives me some déjà vu feelings of 2008 and 2009 while I was in PE. Back then, it was big banks and big companies and a black swan that caused ripple effects downward across the economy. This time, it’s small banks and smaller companies causing butterfly effects upward,” said BluWave Founder and CEO Sean Mooney. “This time around is less severe. As our analysis shows, the PE industry has been leaping into action even before the bank crisis emerged, finding diamonds in the rough, injecting capital to provide life rafts to companies in need and providing every resource their portcos require to not only survive but thrive.”

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Key highlights of the report’s quarterly analysis also found that businesses are increasingly looking for support in these areas of due diligence:

• Strategy remains essential: The private equity industry is spending significant time to understand market conditions, customer dynamics and identify growth avenues during a transitionary economy.
• IT diligence activity grows: In a more complex technological world, PE firms are looking to further digitize, better understand cybersecurity risks and improve their portcos’ capabilities and defenses, especially through data, analytics, and AI-driven technology.

In value creation, private equity firms are indexing on resources such as:

• Specialized recruiters to fill key roles: PE firms continue to make both strategic hires with longer-term plans in mind as well as bringing in more operationally focused executives who can help portfolio companies navigate turbulent times. Top business builders are working with BluWave to utilize specialists by industry, functional area and/or geography.
• Interim leadership to guide the ship in transition: Firms are increasingly using interim C-suite talent to professionalize certain business areas immediately post-acquisition. They’re also looking for crisis managers within BluWave’s network to guide them through a transitionary economy.
• Excellence through mid-level staffing: PE firms are relying on specialized firms to surround their C-suite with temporary “A players” in mid-level roles instead of settling for the less-capable immediately available permanent selections.

The data supports BluWave’s experts’ predictions for 2023:

• Venture capital bubble bursting will create opportunities for private equity: While we were quite certain that the VC bubble was going to burst, we didn’t know what was going to be the ultimate catalyst. PE tech investors will see the bank failures as an opportunity to invest in more mature VC-backed companies in need of capital at more actionable valuations.
• Economic Malaise in 2023: Last year, we contended that the Federal Reserve was going to do anything it could to slow inflation, including causing a shallow recession. The Federal Reserve has followed this path, raising its target rates in March to 4.75%-5.0%. We believe the retraction of money supply caused by the bank failures in March will make the Federal Reserve job’s easier to slow the economy, but introduces more variability that will make it harder to manage the process.
• AI and analytics will be more accessible: Tools that were previously only available to the largest West Coast tech companies are now accessible to virtually every business. With the ChatGPT API available, AI-driven technologies will only become more ubiquitous as companies use these tools to prioritize data quality, accelerate innovation and dramatically increase productivity.

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